This project is the work of Ohio’s eight largest newspapers: The Plain Dealer, The Cincinnati Enquirer, The Columbus Dispatch, The Dayton Daily News, The Akron Beacon Journal, The Toledo Blade, The Canton Repository and The (Youngstown) Vindicator.

The newspapers have been working together for several years to report on issues important to Ohioans.

After reporting locally about extensive cuts in services in their communities, the editors decided to examine the state’s pension policies. The objective: To explore the impact of state-mandated pensions and retiree health insurance on local communities and whether potential increases can be absorbed.

Methods used to determine potential costs

Two methods were used to determine the potential cost of the state pension systems to Ohio taxpayers by 2013.

One technique calculated the percentage increase of local and state governments’ pension costs for the past five years and projected that same percentage for the next five years. Using numbers from the past five years tends to smooth out any aberrations in a single year. That method showed that an additional $604.5 million would be needed by 2013.

The other technique calculated the one-year dollar increase in governments’ pension costs from 2007 to 2008 and projected that same increase for each of the next five years.

Examining the data that way uses the freshest possible figures on government pay and staffing levels, which are directly proportional to pension costs. That method showed that an additional $768 million would be needed by 2013.

The numbers for the individual pension systems that lead to this overall projection are very close to the pension systems’ own five-year forecasts. The State Teachers Retirement System’s figure is 3.2 percent higher; the Ohio Public Employee Retirement System’s forecast is 1.2 percent higher. The Ohio Police & Fire Pension Fund did not calculate an amount, but a spokesman said, “We are fine with the numbers you projected.” The School Employees Retirement System did not calculate a five-year total.

The system for the State Highway Patrol retirees was not examined because it is totally state funded.

At a time when budget problems are forcing Ohio schools to lay off teachers and cities to raise taxes, eliminate jobs or both, one expense that government leaders have not cut is pensions for their workers.

The pension cost to local governments in Ohio now stands at $4.1 billion a year. If current trends continue, the pension costs will grow by $604 million to $768 million during the next five years, according to a computer analysis by the Columbus Dispatch for The Plain Dealer and the state’s other large newspapers.

The increased costs greatly depend on how much government payrolls grow.

But two of the five public pension systems are asking taxpayers to dig deeper to cover funding shortfalls, potentially adding $400 million more to the tally by 2020. All told, the taxpayer tab easily could top $5 billion a year by the middle of the next decade.

Those tax dollars will help ensure that retired teachers, police officers, state workers and other government employees receive retirement benefits that many of their private-sector counterparts can only envy, although direct comparisons are difficult.

Retirement incomes for the most experienced government employees top out at 88 percent of their active-duty pay. Unlike most private-sector workers, whose retirement is driven by the strength of the stock market and their 401(k) plans, the pensions for government employees are guaranteed.

In addition to receiving higher average retirement incomes, government retirees in Ohio enjoy government-sponsored health care, can retire as young as 48 for police and firefighters and have the opportunity to “retire” and collect a full pension while going back to work, often at full pay for doing the same job.

Such “double dippers” were paid more than $741 million by the State Teachers Retirement System last year and $240 million by the Public Employees Retirement System, records show.

In Toledo, even the mayor is a double dipper.

Since starting his current term in January 2006, Mayor Carty Finkbeiner has drawn his annual salary of $136,000 in addition to a state pension for more than two decades in elected and unelected positions. He is leaving office on Monday.

Other officials using the practice include Cuyahoga County Commissioners Jimmy Dimora and Tim Hagan, Recorder Lillian Greene, Sheriff Bob Reid and several local judges, mayors, superintendents and clerks of court.

Question have been raised about whether the budgets of local governments can handle higher premiums given that libraries, school districts and cities are receiving less tax revenue.

“I can’t pay that and still employ 1,700 police officers,” he said. “I can’t do it. The money’s just not there.”

Historic shift

For decades, nearly all government workers have been in traditional pension plans that pay fixed amounts at retirement, usually calculated as a percentage of their highest annual salaries multiplied by years of service.

At the same time, private employers have moved dramatically away from such defined-benefit plans. In 1974, 71 percent of private retirement-plan assets were in defined-benefit plans. By 2008, that number had decreased to 24 percent, according to the nonpartisan Employee Benefit Research Institute, although some private employers still offer a combination of defined-benefit and 401(k)-type plans.

View full sizeDespite that historic shift in the private sector, many government leaders say the public pensions are all but untouchable.

“The goal should be to continue the defined-benefit plan,” said State Rep. Todd Book, a Portsmouth Democrat who chairs the Ohio Retirement Study Council. “It’s good for the employees of the state. It’s also good for the economy of the state. You have retirees pouring billions of dollars into the economy.”

Others look at the disparity between public and private retirement plans as an indictment of the private plans, not the public ones. Several national organizations have been pushing to increase retirement benefits for everyone.

“Everyone deserves a universal, secure and adequate retirement, and we need to start a dialogue to get there,” said Rebecca Davis, legislative counsel for the Pension Rights Center.

But with Ohio’s public pension plan investments faltering in a rough economy and costs increasing because the funds also pay for retirees’ health care — a benefit not mandated by state law — taxpayers may have to pour millions more into the retirement systems just to keep them afloat.

The State Teachers Retirement System and the Ohio Police & Fire Pension Fund are currently in violation of state law requiring them to have enough money to cover their pension obligations for 30 years. They are asking school districts, cities, counties and other local units of government to contribute more toward employee retirements. (They are asking more of the employees, too.)

Under the proposed changes, a full 29 percent of teacher salaries — 16.5 percent from school districts and 12.5 percent from teachers themselves — would go toward pensions. And 37 percent of police and fire employees’ salaries — 25 percent from municipalities and 12 percent from employees — would be earmarked for retirement income.

Public vs. private: Plans hard to compare

It’s often assumed that public-sector employees have it better than their private-sector counterparts where retirement is concerned.

But making direct comparisons is difficult because of the variability in retirement plans.

Virtually all government workers have defined-benefit pension plans, in which they and their employers contribute toward a multibillion-dollar pool of assets that are invested. When they retire, the employees get a fixed amount of money from that pool, based on their years of service and highest annual salaries.

In Ohio, the average state and local government retiree is paid $25,736 a year. That’s 7 percent more than the $24,052 average pension for government retirees nationwide, according to the Congressional Research Service.

Private-sector pensions and annuities average $13,326, the research arm of Congress said. Slightly more than half of private-sector retirees supplement their pensions with income from Social Security, which averages $12,699 a year.

Those are national figures. The research service did not break down its data by state.

Government employers in Ohio do not pay into Social Security, as pensions supplant the role of Social Security income for over-65 government retirees in the state.

That saves the school districts and other units of government the 6.2 percent of payroll that private employers pay into Social Security. Ohio is among eight states in which government retirees are fully exempt from Social Security taxes or benefits.

While nearly all government workers get defined-benefit pensions, private-sector employees are increasingly in 401(k) and other defined-contribution plans.

The increase doesn’t sit well with some private-sector retirees, who have watched their own plans all but vanish.

“I think it’s ridiculous,” said Larry Rausch, 71, of Lancaster, who retired from a sales job at Sears in 1998, before the owner of Kmart purchased the retailer and slashed retirement benefits. “I don’t know how they can expect guys like me to pay their retirement.”

Many government retirees say pensions are part of their compact with their employers and, by extension, the public.

“We’re trying to get away from calling it taxpayer money to calling it deferred compensation,” said David Parshall, a retired Southwest Licking science and math educator who heads a statewide group of retired teachers.

Donna Seaman, who retired in 2002 from a 30-year career as a teacher and elementary school principal in Shelby city schools in northern Richland County, sees both sides of the issue.

School districts are hard-pressed to absorb increases in retirement costs without harming educational quality, yet teachers have come to rely on their pensions, said Seaman, whose daughter is a teacher.

“I don’t expect that they will be able to have the same comfortable retirement that we have now — not that it’s that comfortable,” she said. “I’m very concerned about the stability of the system.”

In some parts of Ohio, cities and schools pick up part or all of their employees’ share of retirement costs, increasing the cost to taxpayers.

Columbus, for example, absorbs the full 10 percent city-employee share of retirements — at a cost of $43 million a year to the city. Faced with a budget crunch, Columbus officials are attempting to scale back that benefit.

Status quo a no-go

The requests for more money from local governments by the State Teachers Retirement System and the Ohio Police & Fire Pension Fund are expected to go before state lawmakers early this year. But there’s already resistance to sacrificing textbooks, police cars and staffing levels today for the long-term security of retirees tomorrow.

For some, it’s politically unpalatable to benefit government pensions by heaping additional taxes onto people who have seen their own private-sector retirement plans slashed.

“Does the public-sector pension plan meet the expectations of the taxpayers who pay the bills?” asked Sen. Keith Faber, Republican of Celina and a member of the Ohio Retirement Study Council. “I think it’s very difficult to ask the taxpayers to pay more money to support the systems.”

Rep. Lynn Wachtmann, a Napoleon Republican who also sits on the panel, dismissed as outdated the argument that government employees deserve better retirement packages than their private-sector peers because they earn less pay.

“The taxpayers of Ohio who are footing the bill for all of this, in the end, need to realize how generous the public-pension systems — all of them — are compared to private-sector retirement plans,” Wachtmann said. “Most of our private-sector employers would go bankrupt if they had to pay the kind of money into employee retirements that our public-sector employers do.”

View full sizeJames D. DeCamp, Columbus DispatchFirefighters are among a group of government workers who enjoy extra perks, such as retiring at age 48 and going back to work, often at full pay for doing the same job.Wachtmann is one of nine voting members of the Retirement Study Council, which is made up of three state senators, three representatives and three appointees of the governor. It considers changes to the state’s five public pension systems and makes recommendations to the legislature.

So far, the panel is not discussing the idea of following the private sector into 401(k)-type plans. But Tom Ash, lobbyist for the Buckeye Association of School Administrators, said the idea is being floated informally in some circles. He labels it a nonstarter.

“Our goal is going to be to preserve the defined-benefit plan because, as a matter of public policy, we think it makes sense,” Ash said. “How do we do that is the question.”

Pension numbers

This is a breakdown of proposed changes offered by the pension systems: Proposals by the four pension systems to increase rates and make other moves to fix their budgets.The following are highlights of the plans presented to the Ohio Retirement Study Council by the state’s five public pension funds:

Ohio Public Employees Retirement System

Employee contributions: No change to current 10 percent.

Employer contributions: No change to current 14 percent.

Retirement eligibility: Members with 32 years of service receive an unreduced pension at any age, up from 30 years of service, while members 67 and older with five or more years of service receive an unreduced pension, up from 65. The minimum age to retire and receive health care would be 55.

Cost-of-living benefit: Maintain current 3 percent rate, except in years when the Consumer Price Index increase is less than 3 percent.

Final average salary: Will be based on the five highest years of earning, up from three highest years.

Pension calculator: Maintain current 2.2 percent of final average salary per year of employment, but delay the increase to 2.5 percent from 30 years to 35 years of service.

State Teachers Retirement System

Employee contributions: Increase 0.5 percentage points each year starting in 2011 from the current 10 percent, rising to 12.5 percent by 2015.

Employer contributions: Increase 0.5 percentage points each year starting in 2016 from the current 14 percent, to 16.5 percent by 2020.

Retirement eligibility: Starting in 2015, members at any age with 35 years of service would receive an unreduced benefit. The same would be true for those at 60 with 30 years of service, and for those age 65 with five years of service. Members retiring at age 55 with 30 years or age 60 with five years would receive a reduced benefit.

Cost-of-living benefit: Starting in 2011, cost-of-living increases would be 2 percent per year for current retirees.Members retiring July 1, 2011, or later would receive a 1.5 percent yearly increase.

Final average salary: Would be based on the five highest years of earnings, starting in 2015.

Pension calculator: Starting in 2015, members’ pensions would accrue 2.2 percent of their salaries for each of the first 30 years and 2.5 percent per year after 30 years.

Ohio Police & Fire Pension Fund

Employee contributions: Will increase from 10 percent to 12 percent over five years.

Employer contributions: Police employer contribution will increase from 19.5 percent to 24 percent over three years, to match fire employer rate. Then phase in an additional 1 percent contribution from both.

Retirement eligibility: Increase to age 52 for new hires, from 48 for those with 25 years of service.

Cost-of-living benefit: Delay until age 55, with the exception of survivors and beneficiaries.

Final average salary: Will be based on highest average salary from five years, up from three.

Pension calculator: No change.

School Employees Retirement System

Employee contributions: No change to current 10 percent

Employer contributions: No change to current 14 percent.

Retirement eligibility ( for those who joined before May 14, 2008 ): A member must be 67 with 10 years of service credit or 57 with 30 years of service credit to retire with unreduced benefits, up from 65 with five years of service credit or any age with 30 years of service credit, respectively. A member may retire early at age 62 with 10 years service or age 60 with 25 years service and would receive reduced benefits, up from 60 with five years of service credit or 55 with 25 years of service credit.

Cost-of-living benefit: No change.

Final average salary: No change.

Pension calculator: No change.

Highway Patrol Retirement System

Employee contributions: Will increase from 10 percent to 11 percent.

Employer contributions: No change to current 26.5 percent rate.

Retirement eligibility: No change.

Cost-of-living benefit: Will decrease to 2 percent from 3 percent, with the exception of those 65 and older whose pension payment is 185 percent or less of the Federal Poverty Level. Eligibility for a cost-of-living adjustment will increase to age 60, from 53.

Final average salary: Will be based on a five-year period, up from three years.

Pension calculator: No change.

SOURCE: Pension fund reports

House Speaker Armond Budish, Democrat of Beachwood, acknowledged that the pension systems have “significant issues” with funding but said the state should strive to protect benefits for retirees.

Few local-government officials are chafing at how much they already contribute to employee pensions, but they’re not thrilled with the prospect of an increase.

For example, Parma Superintendent Sarah Zatik said her school district could ill afford raising payments for retirees. The largest suburban system in the Cleveland area has cut $6.5 million from its $150 million budget and slashed 50 high school teachers after voters rejected four tax-increase requests in a row, most recently in November.

But underscoring the political sensitivity of the issue, Zatik wouldn’t say whether existing retirement costs are too high. If she backs the pension plans, a district spokesman explained, the district would take heat from residents angry over the costs. If she suggests trimming the plans, she would alienate teachers already facing cuts.

The Municipal League’s Mahoney said his group will fight the proposed increases in pension costs.

“They want to take both police and fire up to 25 percent of payroll,” he said. “In these times, well, good luck with that. There will be a prolonged and interesting discussion about all the changes everyone is talking about.”

Indeed, politically powerful labor unions representing government workers figure to be influential in the debate.

They reject the idea of a fundamental crisis in the pension funds, saying the funding shortfalls can be remedied with a few tweaks — raising retirement ages here, boosting contributions from employers and employees there — and by counting on investment markets to rebound.

“All classes of investors suffered during the market decline of 2008 — the largest downturn in 70 years,” five unions representing the majority of government workers in Ohio said in a joint statement. “The long-term strategy and design of our retirement systems smooths gains and losses over a longer period of time, so [defined-benefit] plans are better able to reduce volatility. The same cannot be said of [defined-contribution] plans.”

But the assumption of average 8 percent investment growth — without which the pensions may have to come back and ask for more tax money or slash benefits — seems overly rosy, said Leo Kolivakis, a pension consultant and writer.

“They’re trying to inflate their way out of this problem,” Kolivakis said.

The unions cited statistics from the National Institute on Retirement Security that 357,234 retired government workers in Ohio received a total of $8.41 billion in pension benefits from state and local pension plans in 2006, with most of that sum going back into the state’s economy via purchases of medications, cars and other products and services.

That argument is less persuasive among private employers. In 1996, investments in 401(k)-type defined-contribution plans overtook traditional pensions, and the trend has accelerated since then, according to the Employee Benefit Research Institute.

In contrast, retirement benefits account for at least 14 percent of payroll for all of Ohio’s locally funded public pensions — topping out at 24 percent for firefighters in the Ohio Police & Fire Pension Fund.

Book and other defenders of public pensions say that government employees trade lower wages for more generous retirement plans.

But that’s not necessarily the case. According to U.S. Department of Labor statistics, there is virtually no difference between private-sector and public-sector pay in Ohio.

But there is a difference in the willingness of private employers to take on the risk of having to bail out pension plans if investments go sour or costs increase sharply, said Alan Glickstein, a senior retirement consultant for Watson Wyatt.

Still, traditional pension plans actually generate more bang per investment buck because of the economies of scale of handling billions of dollars in retirement assets for tens of thousands of retirees, Glickstein said. Traditional pensions can offer the same level of benefits at 30 percent less cost than 401(k)-type plans, he said.

“It’s almost impossible for a pension plan to be less efficient,” Glickstein said.

Leaders of all five state pension systems say they’re committed to maintaining retiree health care and full pension benefits over the long haul, even if some of the terms become less generous.

Michael Nehf, head of the State Teachers Retirement System, said keeping pensions for teachers is “extremely important.” The alternative is welfare for some of his retirees.

The other major school pension system is taking a different approach.

The School Employees Retirement System, which represents nonteaching employees such as bus drivers and cooks, is not asking school districts to contribute more toward its employees’ retirements, which average $879 a month — far lower than their counterparts in the other state pension systems and below the federal poverty level. Some of the nonteaching employees are part time.

Forcing school districts to boost their contributions would invariably mean cutbacks elsewhere, such as eliminating busing, said James Winfree, executive director of the School Employees Retirement System.

“We understand the financial stress that school districts are under,” he said.

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